The Fagan Financial Report

July 23rd, 2023

Episode Transcript

(00:00):
Good morning, Welcome to the CapitolDistrict's Money and Investment program. You're listening
to the Fagan financial Report of DennisFagan, sitting here with my son Aaron,
as we do every Sunday right herein news Talk ten and one h
three one w G Y. Ifyou want to join in the conversation,
please feel free to do so.One eight hundred talk w g Y.
That's one eight hundred, eight twofive, five, nine four nine.

(00:20):
Susie Ormans has ditched the four percentrule for retirement income. It doesn't work
anymore. We'll talk a little bitof mark to your seventy and work to
your seventy live. Heck, gotthe scarcity mindset, worsk work longer,
postponed soul security. You know,I just don't get the armageddnish type of

(00:42):
talk. Enjoy your six year retirement, right, Enjoy your six active years,
yeah, eight active years or whateverI have statistically six altogether. You
know, you know, crazy howthe stock market tends to perform after a
FED rate cut. Be careful whatyou wish for. Everyone wants to FED
interest rates the go down. Dowe really talk a little bit about that?

(01:03):
And then the Naves deck rebalancing themagnificent seven whatever you want to call
it, really taking up fifty fivepercent of the naves that composite. Also
why interest rates will probably stay highfor a while. So talk all about
that in the first half hour.M What do you got there? Do
you what do you do you gotfor me? Anything of note that you
want to touch base on? Notreally fed meets this week. See what

(01:26):
they have to say. What doyou think I think they'll raise a quarter
point. Talked a little bit aboutter back Friday on w g Y.
Also, I think it's good.You know, I think the worst thing
that could happen for the stock marketwould be complacency and optimism right now.
I going forward, you know,I think the market is fairly valued in
here, and I think it wouldbe healthy for the you know, let's

(01:49):
say we are in a bull market. The next bull market, I think
it'll be healthier for the next bullmarket. Um, if we stagnate for
a while, I'm not gonna like, I don't want to say the healthiest
thing for the economy and the stackmarket would be to go into a MIRA
other session. But I do kindof think that a little bit. I
think the sustainability of this bull marketis is important and I think I think,

(02:15):
you know, not getting ahead ofourselves is the most important thing for
the sustainability of it. Well verywell put, very very well, Thank
you, and you know, andit kind of addresses a couple of things
that you know, I kind ofwant to talk about this. You mentioned
complacency and optimism. You know,maybe a pullback or sideways move for a
while in the market would increase thesustainability of this bull market. And that

(02:39):
kind of flies counter to what peoplewant to see. People want to see
every statement that they get the valuegoes up. Why is that not good?
Every monthly statement that someone gets fromschwid. I mean, it's just
like a stack chart. You don'tbuy a stack when it goes parabolic,
you know, I don't think youknow, yeah, so I think that's

(02:59):
the same. You know, ifyou think of one stock, your whole
portfolio, you know, when itgoes parabolic, sent you know, it's
a sign something's kind of a miss. In my opinion, something's a little
wrong, whether it be people onthe sidelines chasing money or you know,
shorts covering their call something like that. It's usually you know, a sign
of you know, the market mightpull back or stagnate. And I think

(03:23):
we kind of saw that midweek thisweek. I mean, look at the
NAIs that compositive because a good exampleof thirty five or forty percent this year,
you really don't want that. Lookat that's not good. You know,
that's not well, it's not notgood. It's not sustainable. It's
like sprinting. You know, ifyou're a distance run or sprinting is not
good. You know, sprinting you'regonna club, So you get to maintain
a pace that is sustainable. Right, Yeah, another thing you said,

(03:46):
complacency and optimism. According to theAmerican Association of Individual Investors, bullish sentiment
estimates that the stock market will riseover the next six months jump ten point
four percentage points to fifty one pointfour sent you know, to quantify that,
that's ten point four percentage points ontop of what was one, which
was forty one percent people were bullish, So nearly a twenty five percent jump

(04:08):
in bullish sentiment, those ten pointfour percentage points. And I'm added that
part going back to what they toquote, this marks the seventh consecutive week
that bullish sentiment is above its historicalaverage of thirty seven point five percent.
It sounds like a lagging indication thelongest above average. Oh, definitely,
you know, definitely. You know, sentiment goes up when the market goes

(04:30):
up, Sentiment goes down when themarket goes down. But that also addresses
some of your concerns that the markethas run up and we've got to work
the optimism. I just refer tothe optimism as as an outlined by American
Association and the individent investors. Butalso I think it implies complacency. Yeah,

(04:54):
I think the average investors becoming alittle too complacent right now, and
you might want to see a littleshaking out where the move from from strong
hands to weekends. Although you know, listening and reading a lot of investors
out there believe that, you know, the SMP five hundred is kind of

(05:15):
breaking out to the upside. Youknow, this past week we had great
performance from the cyclically heavy transport average, your rails, your your truckers,
your airline. So there's there's alot going on that could indicate that we
could have a breakout to the upside. It's gonna be hard for the for
the smp F. I pointed tobreak out to the upstop nineteen percent this
year. Well without technology, youknow, and communication services and consumer discretionary

(05:40):
stocks. Those are the really thebig the big the big elephants in the
room, and the bigger, thebigger stocks you know, are the are
they they're driving the SMPF. Ifound it because it is a spun as
seven and a half percent of thesmpaid. Microsoft is almost seven, Amazon's
three, Google, you know almostfour in videos three So yeah, you

(06:02):
know these are it'll be hard forthe S ANDP to um yeah, to
perform without these stocks performing. Thatsaid, I don't know, I think
we talk about on the second half. We did record it. But you
know, that's why I think agood hedge for the SNP is the RSP,
which is the equal equal weight SMPfive hundred etf. As you know,

(06:25):
if we still think the economy isin good shape, you know,
the macroeconomics are pretty good. Umin the economy, you know, interest
rates it will higher, so it'llbe a little bit tougher on companies.
But companies that really don't need totake out loans, um don't need,
you know, ways to finance theirrevenue should continue to do well, and
I think the RSP is a goodum ETF to invest in that and it

(06:46):
still is the largest five hundred companiesin UH in the United States, um
so are in the world. SoI think, um, you know,
it's a good way to to playthat really because I do think the investment
environment is still pretty good, youknow, not great. There are some
headwinds, um, but I stillthink it's it's um you know, I

(07:10):
think the US economy is still agood place to invest and the globally cup
is still doing pretty well. UMsee what I was going to run run
right offss SO Investors Sentinel. Wetalked a little bit about that. Oh
yeah, I think we saw thisweek. If you look at the eleven
industry groups that are that there are, I think what we saw is Loves,

(07:36):
the Spiders, SMP Depository, theexchange traded funds. There's eleven of
them that the broad ones Energy,healthcare, financials, utilities, consumer staples,
industrials, materials, technology, realestate, consumer discretion or communication services.
Five best performing sectors. Energy,healthcare, financials, utilities, and
consumer staples generally speaking, have beenthe laggards thus for this year. So

(08:01):
the winners last year have been thelaggards this year, is what you're saying,
right, literally, Yeah, yeah, the winner's last year have been
the laggards this year. The winnersthis past week have been the laggards this
year. Energy is the worst performingsector the year to date, contrary to
what most people thought coming in,Energy was the best. Healthcare is the
ninth energy for the year. Healthcarewas the second best performer. Financial is

(08:24):
the third best performer this past week. Financial seventh year to date, Utilities
the tenth best performer the SEC.You know, what I think this means
is that people still want to bein the market. That's a good point.
You know. It's seeing that technologyis a little bit overvalued, so
they kind of run to things thathaven't been performing this well this year.
That's not really that in depth.It's not that in depth thought process I

(08:46):
think on investors. But I thinkthat's kind of what's going on, and
again I think that's kind of goodfor the stock market. Yeah, I
like, I mean, it's hardto be like, man stinks. Set
to Attack is up thirty plus thirtyfive percent. It stinks to head how
that's and piece up twenty because youreally can't say that it's all good things.
But yeah, I think for thesustainability of this bull market yet,

(09:07):
we need to kind of pump thebrakes a little bit. And I think
that involves a quarter point rate heightthis week, and I think that's the
smartest thing to do. But wecan also pump the brakes by rotating out
of some of the better performers,you know, you know, I think
that's what you could see over thenext several months as well, the hot
performers, the the Amazon, theAlphabets, the Microsofts of the world take

(09:31):
a breather here on, you know, over the next few months. And
energy, which I still think isin a secular bullmark. It looks really
sound here. Healthcare, financials Iwouldn't touch you. I wouldn't go near
utilities and consumer staples only because Ithink they're pretty richly valued relative to their
growth potential. We look at financialstrading at less than ten times earnings,

(09:54):
you know, relatively healthy economy,healthcare with a lot of nice dividends,
healthcare with pricing power, healthcare withreally could benefit from AI could benefit from
you know, R and D,and then energy you know benefiting from uh,
you know rout to be strong economyand benefiting from technology. I think

(10:15):
you're you're looking at and that andI think that's that's probably what we'll see
going forward. You know, wementioned in the second half that you know,
the the uh, the larger companiescan can begin become laggards, and
and we're watching that very closely.But I think as a client for clients,

(10:35):
this is part of our quarterly newsletter, you've got to be careful that
you don't hit your wagon. Wereceived an email from one of our clients
wanting to buy Microsoft and Amazon andApple, and you know, and it
become their portlo becomes undiversified, andyou're running basically a technology fund and it
but is the SMP five hundred oftechnology fund. When you say about it,

(10:56):
I remember with it, it's atleast on a twenty percent technology almost,
so I mean, yeah, itkind of is a little bit.
Technology is twenty eight percent of theconsumer discretionary doesn't have that as a specific
sector, but I would say,you know, consumer discretionary would be a
little bit of like the amazons ofthe word recyclical is discretionary? Yeah,

(11:20):
and then how about communication services?Is that in there? No eight percent?
Right? So basically you're talking fortysome percent of your of the S
and P five hundred is technology oriented. Yes, And you know that would
make sense because you know, thetop ten holdings, you know, the
top the ten largest companies in theworld are all one too. Eight of

(11:43):
the top ten are technology companies,UM and two and the other two or
Berkshire and United Health. You know. Then you know, JP Morgan's kind
of tense because Google has two hasto different share classes, So yeah,
it is kind of a technology fund. But you know, the thing about
you know, Apple, Microsoft inthose two in general is they're a little

(12:07):
bit expensive, but they're all findthey're both finding ways to increase their revenue
and increase their margins. So youknow, it's hard to get away from
the companies that are you know,not are just the most innovative companies in
the world, but they're also theyhave also are extremely attractive fundamentally if you
look at their balance sheets, ifyou look at their free cash flow statements,

(12:30):
if you look at their income statements, they're all super strong. So
you know, on one hand,it's like, hey man, hey there's
you know, we're in a higherinterest rate environment. But then You're like,
Okay, you know, higher interestrate environment doesn't historically welcome technology stocks.
But then you look at you know, let's say you take the names
off these these financial statements. Youknow, it's hard to identify them as

(12:54):
technology companies because they are so strongfundamentally, So you know, it's it's
it's hard to get away from thesecompanies. So what I think you should
do is, you know, yousay to yourself, hey, I don't
want to be would I don't wantApple to be fifteen percent of by portfolio.
You pair back to ten percent.I think that's the smart thing to
do. I agree, you know, I agree. And in fact,

(13:16):
the NAZDACK we'll be doing that specificthing in a special rebalancing that will be
balancing back in the late nineties andone in twenty eleven, so this will
be the third rebalancing. Right now, the seven largest NAZDAC stocks comprise about
fifty six percent of the total indexof the of the NAZDAC one hundred.
This rebalancing will bring this bet andit happens tomorrow, we'll bring that down

(13:39):
to forty four percent next and Ithink you got it. In the seven
largest Apple, Microsoft Navidia, Amazon, Meta Platforms, Tesla, and Outlet.
I think individuals might have been selling, and companies might have been selling.
Institutional investors might have been selling ananticipation of this. So we'll have
to see how the NAZAC performs thisweek. It was down a little this

(14:01):
coming week. It was down alittle bit this past week, and the
rebouncings and men could basically bring broaderdiversification to passive index investors. But you
know, at the same time,I think what's going to be hard for
investors in this sector in general isdo you really want to sell these companies

(14:22):
during earning season? That's tough.Do you want to sell Apple before the
earnings? Do you want to sellAmazon before their earnings? Tessa Tesla had
their earnings, is that this islast week, But yeah, it's it's
tough to sell these companies before they'reearning. Apples yet to have earnings,
Microsoft, Alphabet, Visa, they'renot part of it, Meta, so
three of them, Amazon, fourof these selves have earnings this coming week.

(14:46):
And we always saw was Tesla's Isay, right, so we have
but this week we have Microsoft,Alphabet, Meta Platforms, and Amazon,
So we'll see you know, oneof the things too. And we'll work
through those topics that we talked aboutat the beginning of the of the show,
and I'll take a shorter one andthen go to a longer one.

(15:07):
The stock market. People want lowerinterest rates in general to get the They
think it chuses the market, andit really doesn't. A quarter point and
I look back, this was anarticle that appeared three or four years ago,
but it's still appropriate because we haven'thad a rate where we had the
rate cuts back in twenty and twenty, but since nineteen ninety, quarter point

(15:33):
rate hike helps the market. Afifty point basis rate hike, you know,
if you look at that, sothree months and six months later the
market is down. So I thinkthat's something to be concerned about. That
twenty five basis point rate hike.The market can handle a fifty basis point
rate hike, it suggests that there'seconomic problems. I think that's why we

(15:56):
needed a quarter point rate hike,in that it's more like symbolic for what
the Fed means to do as opposedto doing something. And I think,
you know, I think the rhetoricis so much more important now as it
was you know, ten fifteen yearsago that you know, I think it's
the smart thing to do as theFED is say, and it's kind of

(16:18):
signaling that, hey, we areserious inland, and we're serious and vigilant
on inflation. And yeah, butyou know that four to two percent is
going to be so much more difficultthat you know. I think sometimes I
think, you know, I guessyou have to listen to the FED a
little bit more. I think BillMiller said that, and it made been
the end of twenty twenty one.No, I think it was the end

(16:42):
of last year. He's like,hey, you gotta listen to the FED.
And they've been saying we want toget unemployment numbers up a little bit
and we want to get that rightback down to two. So I think
you kind of have to listen tothe FED here. And if they're serious
about that two percent, you knowthey will do a quarter point rate hike.
I agree. And if you lookat inflation, inflation in Europe remains

(17:03):
sticky. Inflation felt I think fiveand change five point five percent year over
year was about ten point five,ten point six percent, just as past
October. Europe's much more US iseighty two percent services in about eighteen percent
manufacturing. Europe's got to be atleast at but now. But because Europe's

(17:26):
a service based economy, inflation ifyou look at the higher component of that
as wages, unemployment in Europe inthe Eurozone is at as at an all
time low, and services inflation isat an all time high. So I
think if you if you look atour economy in conjunction with the global economy
and then take those European numbers,you've got to figure inflation. It will

(17:52):
be sticky to a certain extent.And I think that's kind of why that
quarter point hike might not be abad idea. One eight talked w g
Y one five five nine four nine. Uh, Susie Ormans has ditched the
four percent rule for retirement income.And I really don't want to get that
much on a soapbox, but uh, you know, we listened to her

(18:14):
interview that took place within the pastcouple of months or so, and it's
just kind of disconcerting. Ye thinksome of the things she says in there,
without without hammering her, it wasjust a little bit disconcerting. Yes,
no, go ahead there you wouldknow, you know, it's a
tough Uh, she's going a toughobjection talk about you know, she's I

(18:36):
guess she's in a tough position.But you know, you don't want to
sound like you know, I guessI don't know. You have to know
what people are going through and beinglike, oh, you know you can
retire earlier or whatever, because noteveryone can, but you know you don't.
You also don't want to be scaredof your money if you don't have
to be. And you know,she almost talks like you're going to be

(19:00):
seventy years old and being like shealmost kind of breeds fear in your in
your own savings, and that's nota way to live either. You know,
you don't want to be you know, seventy eight, seventy five eighty
listen to her all the time andbe like, wow, now I'm now
I have five years left to live, you know, and I still have
all this money. Then all ofa sudden, you know, oh wow,

(19:22):
I can spend seven eight percent ofmy money. And then you're realizing
that I can't do anything, Ican't do the things that I used to
be able to do, or youdon't have anyone to do that with.
Yeah, So I don't know.It's it's not a case by case basis,
you know, But yeah, Idon't know if I technically agree with
that, right. And her advicewas, you know, to work till

(19:45):
seventy. Don't take some work untilI'm at least seventy or longer. Yeah,
And I would modify that. Ithink working is healthy. I'm sixty
one. Everyone wants a flexibility intheir life as you get older, you
know, I think the new retirementin my mind, the healthy retirement in
my mind having been in this businessforty years, and healthy would imply for

(20:10):
me also peace of mind. Peaceof mind helps on a number of fronts
during retirement. So for me,whether you're having more money than you know
what to do with or need towork, you know, working part time
is healthy. It gives you peaceof mind when the market stumbles, It

(20:30):
gives you for a lot of Americans, it gives you that inflation hedge and
you know, you know, icingon the cake to do the things you
want to do in retirement ahead.Well, I think you know, yeah,
And I think this is a toughsubject because now and take it to
some clients that we know that,like you have to say they do physical
labor. Its like it's tag foryou to say, you know what I
mean, I kind of I agreewith that. I agree with that.

(20:52):
You know, it's all, youknow, the type of job that you
have, if you're capable of doingit, if you'd like doing it,
um if you have to do it. So you know, and quite often
it's one one. Let's say you'remarried or you know, have a partner.
A partner might like his or herjob. Spouse might like his or
her job. The other one mightnot like his or her job. So

(21:15):
you kind of, you know,move along those levels, you know,
where or one might be healthy nothealthy. One might have a job that
implies that entails physical labor, andwhere maybe you don't like your job,
but it still allows you to goon three vacations a year as opposed to
one. It's worth it, youknow. So I think, Yeah,
it's a kind of case by casebasis sometimes and I think, you know,

(21:36):
this is one of those things.But I don't think. I don't
think the baseline case should be,you know, work to your seventy lives
scarcely because yeah, the market andduring the interview, she says the market
may go down for a long time. Yes, it may go down for
a long time, but that's notthe base case. I think the base

(21:56):
case would would imply. And thenwhat she says is, look, still
do three percent rather than four percent. Yeah, if you can do it.
Don't take money out of your retirementif you don't need it. But
also, don't you know a fakean associates. We separate the passive from
the active stage of retirement. Thepassive stage is when you can't do the
things, or don't feel like doingthe things, or don't have anybody to

(22:17):
do them with things that you oncedid during the earlier stages of your retirement.
You know, how much money doyou want when you enter that passive
stage to take care of a potentialnursing home stay? Certainly, well the
answer is enough, and who knowswhat enough is. But you just got
to be careful that, you know, you know, do you really want
to die with a ton of money? Yeah, and say, well,

(22:38):
we didn't do this, we didn'tdo that because of it. You only
got a minute left. But that'swhy, you know. We see clients
comment it's like, oh, hey, this the bank gave me this financial
plan. It's like, I thinkfinancial plans are great, but they should
be a rough draft and that youknow, just because you're sixty, just
because your ex because just because yourX, doesn't mean you should be doing
this. Everyone likes different things,spends money different ways. In that it's

(23:00):
not just a cookie cut I don'tthink you should add just a cookie cutter
approach to retirement. And that's kindof why. You know, we've been
in business since nineteen. It willbe in August, it will be thirty
four years. You've been here eleventwelve, now coming up on twelve.
You have the r NBA. It'sit's it's you know, that's why we
do take each client's needs independently.Right now, though it's ten thirty on

(23:25):
the station, depend up on thenews, Weather Information, News Talk eight
ten and one to three one wG Y. Good morning, Welcome back
to the Capitol District's Money and Investmentprogram. You're listening to the Fagan Financial
Report on Dennis Fagan sitting here andthere and my son as we do every
Sunday right here in new Stalk eightten and one on three one w G
Y. Good first hour, veryinformative, and now we're moving to an

(23:48):
even more informative second half hour,and Aaron has some things you wanted to
go over, So why don't wedo that? I have some things.
It's you know, when is enoughenough is one of the things I had.
You know, Yeah, we'll talka little bit about that after you
cover some of the issues that youwant to cover. And so much information
out, you know, macro andduring earning season and we had Nvidia,

(24:10):
we had Netflix earnings, Tesla's earnings, couple of banks last week, FedEx
had earnings. You know, sothere's a lot to talk about. But
you know, you wrote a goodpiece of the quarterly newsletter that I read
and I was super impressed with.Thank you, and it's you know,
the title of it kind of is, you know, stay diversified. And

(24:32):
basically, you know, for growthinvestors don growth investors, what it says
the ten years prior to a stockentering the top ten in market cap and
after the ten years so you know, ten years before they average about eleven
point three, then five years beforetwenty, then three years before twenty six
percent, then three years after pointseven percent, five years after negative six

(24:56):
percent, and ten years after anegative one point five percent annualized I mean
This is from Dimensional Fund Advisors.So you know, you know, we
have stay they stay diversified. Butthen also we have this week Kramer coming
out and saying says, stick withhis magnificent seven tech stocks, and that
would be Microsoft, Tesla and Video, Apple, Meta, Google, and
Amazon. So, uh, youknow that's kind of something that you know,

(25:19):
I think is important I guess totalk about. You know, do
you let your winners run, doit takes him off the table? Do
you stay diversified? What's the what'sthe right approach? Well, I would
say, you know, what youwere saying is that before companies became the
largest in the world or the largestin the SMP five hundred, they were
doing great. You know, elevenpercent a year you mentioned over a ten

(25:41):
year period, twenty percent average ringyou would turn over the five year period
prior to that in twenty six percentaverage over three years. And but then
when the start of that calendar year, when they get into the top ten,
for the next ten years, theyreally do nothing. If you take
a look at those same ten youknow, I know we've seen a lot
of different we're a lot of differentcharts of what were what what were the

(26:03):
what was the SMPE five hundred comprisedof in two thousand and ten, two
nineteen ninety, nineteen eighty, andthose names change a lot. And I
think this is somewhat of an indicationfrom dimensional fund advisors that once companies get
big, they really go nowhere.And it's difficult really for for the average

(26:26):
investor to realize that it's so easyto buy Apple computer right now. It's
so easy to buy um, youknow whatever, Amazon right now or Microsoft
Nvidia. Uh, just as itwas so easy to buy Ge, you
know fit twenty years ago. GE'sgoing nowhere. Well, Gee's trading at
one ten, yes, but Geehad a one freight reverse split within the

(26:48):
past couple of years, so Gee'sreally trading at about fourteen bucks to share.
Uh. So the job of someonelike us would be to make sure
invests do maintain a diversified portfolio acrossmarket capitalizations, across different industries. Uh.
And both on both on this theequity side, but also the fixed

(27:10):
income fixed income you deal with durationand credit quality and like and coupon um.
So, but that that and whatI if I would say to you,
Aaron, we can we can wecan talk about this more I'd love
the opportunity. Um, this this, this, this surprised me a bit,
and it begs the question is itdifferent this time? It surprised me
that the largest companies in the Sand P five hundred at the start of

(27:34):
the first year calendar, you're inthe top ten. Oh yeah too.
And you know, just as youyou know, kind of had that beautiful
monologue there. Um, you know, I think that I'm trying to think
of, you know, maybe whatare some reasons though, of course,
of the last hundred years, uh, companies, Um, you know,

(27:55):
this happened to companies becoming you know, I would say this time could be
a little different, and I wouldkind of I would agree with Kramer with
stick with you know, these companiesthat did well, you know, I
wouldn't you know, I don't sayall of them, but you know,
just you know, Microsoft, Apple, Microsoft, Apple, Google and Amazon,
they're gonna have to give me reasonsto sell other than a tiny bit

(28:18):
of overvaluation, and that they justhave their hand in not only today's technology,
but emerging technologies and tomorrow's technologies fiveyears, ten years from now day.
If they're handing all those technologies,I think, what's a little bit
different, and what I would youknow, I don't have any date in
front of me when I get outof here. You know, I'll be
interesting to see, you know,the you know sectors, what sectors these

(28:41):
ten largest companies have been in overthe past a hundred years, you know.
So, and as we switched froma from anact and manufacturing to a
service based economies. You know,the companies like US Steel couldn't really diversify
outside of US steal even Gin.Yeah, so you had a lot of

(29:03):
manufacturing companies where it's hard to diversifyoutside of your scope of business. While
we were manufacturing um economy and andnow being more of a service based economy.
You know, these companies are alreadyservice based economies. And you know,
even AI will be a service basedeconomy to some extent. So I
could see these companies still leading theway, even ge. You saw what

(29:26):
happened with GB being you know,one of the largest companies in the world
at one time, right yes,and look at they try to diversify outside
of their scope of business to andnow we're seeing you know, G Healthcare
Synchrony a lot of spinoffs right now, um, because they tried to you
know, expand um diversify outside oftheir their core competencies. And you know,

(29:49):
and and I guess I'm monologuing now, and and that you know now
that that we're seeing even the largestcompanies in the world now they already have
their hand in what we think aregoing to be um, you know,
the revenue drivers of the next tenyears also, so I think it'll be
easier for them to you know,maintain relevance relevance. Yeah, and and

(30:11):
and they've done a good job ofshowing us that they that that they can
do that, and I'm done.I think I think it was a very
good point about like a car companyor something like that. I mean,
what's a car company not going tobe? What's it going to become?
How's it gonna how's it going tochange? Electricity? You know, these
are you know, some of thebigger revolutions that have happened over the past

(30:32):
one hundred years that it's hard toyeah, diverse by outside of that.
Right. Whereas technology, if youlook at apples starting as a computer,
and then the inventions along the way, like if you look at you look
at forward, all the inventions alongthe way, the accessories, and the
like better engines, better performance,you know, better gas mileage, fuel

(30:56):
efficiency, as for as pollution controlsgo. All went to uh toward that
one product so to be an automobile. But if if you look at advances
in technology for the company like Apple, which started for computers, then moving
to you know, the iPod,un then the iPad, then you know

(31:17):
and along the way at some pointin time either before or after or conjointly
with those of the iPhone, andthen the service side of that with music
and then healthcare, uh and thelike. So I think what you're saying
is is makes a lot of sense, and that is these companies almost go
through like a metamorphosis or that theiradd ons that pie is getting bigger that

(31:38):
they can address, whereas there's alimited pie really that Ford can that Ford
can sell into. And they theyhave faced the law of large numbers.
And I think sooner even you're seeingthat now with I think BMW just announced
like like basically twelve hundred dollars subscriptiona year to have you know, enhanced

(31:59):
driving. Tesla does that. It'slike seven grand year, two hundred bucks
a month for their like upgraded driverlists. So even hardware companies are trying
to get into like recurring revenue oftheir software um and and that's difficult for
companies. You know, Tessa isa little bit different, I think,
is it entered a you know,more of a man. You know,

(32:20):
they kind of blend manufacturing with software, and they're able to maintain incredible,
incredible margins just kind of you know, redoing and reinventing you know, how
cars are made as as well.So you know, even larger companies like
Apple, you know, as yousaying, it's like, you know,
they have the hardware, but theyalso have blended in services, um,
their app store, things like thatto really be able to you know,

(32:43):
continue to you know, have differentavenues, but they but they still are
going to fake space submiss So whileyou were talking a little bit, I
wrote down some of those. Oneis the law of large numbers. You
know, there's only so many peoplethat Apple can sell into. Now we're
not even close to being they're giventhe emerging economies around the world. But
that's that's one of the issues.And even if you get off Apple for
a minute and get onto just atypical company, there's just so much that

(33:07):
these the creating of new customers,yourself, political risk along the way US,
the US and China. You know, we're trying to protect our sensitive
information and they're trying to do thesame thing. So will that close down
trade a little bit? You alsohave regulatory risks domestically in the United States.
We saw that with you know,we're seeing that with social media and

(33:30):
the like. The dwindling potential ofnew customers I think I mentioned that,
and just the ability to change directionwhen the market dictates because of the mere
size of a company is difficult.You also, if you look at just
legacy costs, pensions, profit sharing, plants and equipment, undepreciated plants and

(33:50):
equipment, all those things make itharder for larger companies to move. And
I know, and I don't thinkit's I don't think it's over. I
think in fifteen or twenty years we'llprobably see a lot of names that and
obviously products and services that we've nevereven realized. And I will digress for
a second. And as much thateveryone's worried about, you know, will
AI really hurt the job market?And I don't think it will. It's

(34:13):
never have, never has before.Every advancement in technology has helped generate new
jobs because it's generated they aren't evenaround yet, that aren't even around yet
exactly, you know. And alsoI guess going forward, when you're talking
about having these large companies and it'syou know, stick with the magnificent seven,
diversify out of it, you know, sell them. It's like you

(34:35):
have to remember that, you know, the large cap technology. You know,
let's say you take history into account, the S ANDP does eleven percent
per year. Large cap tech nowgives you correlation to the market where you
can take historical figure and say,hey, at least it'll do this much
a year over a full economic cycles. You know that that kind of contradicts

(34:55):
what you're saying with with with thisarticle is saying they perform after ten years
a little bit. But you know, I would say, now, you
know, if you're if you haveless than seven and a half percent of
Apple in your portfolio, you're underweight. So I think it's always you have
to always remember that these large captech companies are you know what a quarter
of the SMP kind of makes upWell that what if you think about it,

(35:16):
though, it's going to be hardfor the SMP five hundred to make
serious headway because if you look attechnology, then communication services and consumer discretionary,
a lot of those companies they're they'rekind of technologies that lead that consumer
discretionary be like an Amazon, youknow, communication services that the Google's in
there, maybe meta platforms is inthere. So you're probably talking thirty five

(35:38):
or forty percent of the SMP fivehundred has you would call technology company if
you if you weren't familiar with thisindustry. So that if indeed the largest
companies flatten out their stock performance,it's gonna be hard for the SMP five
hundred to make headway at that.I think that I think the I think
the opportunity right here is for toinvest in companies that and we're look,

(36:00):
we look at them continually that havethat use technology to enhance performance and shareholder
value without be consider being considered atechnology company, like a Caterpillar, a
Deer, a SCHLUMBERJ. We havea lot of schlumberj and like oil and
gas companies in general, to becomemore efficient. Um they you know have

(36:23):
record free cash flows and I thinkthat'll continue. But you know, I
think also a way to stay diversified, and that's what we do. I
think it's our largest ETF is theRSP largest stock ETF UM, it's the
S ANDP equal weight ETF. It'sonly up ten percent this year, so
it is lagging. But you know, if you're if you're positive on the

(36:45):
US economy in the stock market ingeneral, but think that you know,
the S and P or large captech has kind of run away a little
bit. I think the RSP isa good way to play that as well
as you know jp YI and jpQ UM, JP Morgan and Equity Inca
are Yeah, what's it called jpMorgan Equity Income U. So I think

(37:07):
those are good ways to play hthe market or invest if you think the
market is a little bit over value. So three ETFs, RSP, j
E P I Paul in the Indigo, and j ep Q. The JPQ
more affiliated or associated with the NAZthat composite and to give your bumpy ride,

(37:28):
the j the ladder. The twolatter ones pay dividends, you know,
pushing ten percent if not a littlebit over I remember if the RSP
is actually up ten percent this year. Yeah, so it's had a nice
run, you know, the pastthree months, it's up six percent Uh,
so it's catching up a little bit. If you look at its largest
holdings, well not largest holdings,but you know what gives you a better

(37:50):
a little bit better ideas. Ifyou look at sector um, you know,
it's thirteen percent in financial services,so you know they should they kind
of caught up a little bit afterhaving, you know, a really rough
first half of the first year withwhat happened with Silicon Valley Bank, Key
Bank, things like that. Thefinancial services sector in general only fifteen percent
technology as well, twenty five percentdefensive, thirteen percent in healthcare. You

(38:15):
know, I think Johnson and Johnsoncompanies like well Johnson Johnson had had kind
of a rough beginning of the year, so people are looking for maybe some
more value towards this second half ofthe first year. So second the shorter
we saw disagree with. Yeah,so you know, I think it's a
good and it's pe ratio. I'mgonna say it's probably much less than the

(38:37):
S and P five hundred at averageP at seventeen percent, so it's a
little bit lower than the SMP tradingI think around twenty percent. So well,
that probably is probably due to thefact the result of the fact that
they don't have as much technology.Yeah, so I think it's a you
know, being positive on the marketin general. It's a good way to

(38:59):
to stay in the market. Andyeah, SP's had about twenty three percent
on a Peach Show right now.So so to kind of summarize this section
of the show, companies that becomethe ten largest flattened their performances zero or
less than that for the for thethree, five and ten years after they

(39:21):
become the largest ten companies. Soit's according to dimensional funded advice or something
that is quite surprising but makes somesense. But also, you know,
when you have your own portfolio,keep that in mind. What else you
got for us for I think stayingin the technology sphere. Um. Netflix
had earnings on Thursday. They weredown about you know, eight percent percent

(39:44):
ten percent on Thursday, after youknow, up sixty percent year to date
rally on a little bit slower thanexpected revenue growth. I think they still
brought in about five million people Uin a five point nine million customers,
following last year's for the first subscriberloss in a decade. One point five

(40:07):
million paid subscribers to their new adbased platform, which is interesting. In
third core revenue was at eight pointfive billion. I think they had about
five billion dollars in free cash flow, so you know, it is down
a little bit, I think basedoff of having such a good year so
far. And I think it's oneof those earnings courts where you're going to
really have to, I guess blownumbers out of the water to do well.

(40:29):
But you know, what I thinkis interesting about Netflix, and you
know, if you look at companies, if you take out being overvalued or
undervalued. I know you obviously haveto take that into account, but if
you take that out with Netflix justas a company, and it's like let's
say next three to five years,you know, I think what's like super
important about Netflix in general is,you know, look at their competition right

(40:51):
now. Warner Brothers is I thinkhad the largest Warner Brothers Comcast Paramount.
I think it was maybe one Brothersthat had um it's worse. It's worse
quarter essentially for their streaming service.Ever, you have Disney going through what
Disney's going through, losing subscribers,what's going on in Florida, and then

(41:14):
you have yet Comcast not doing well, Paramount doing well. So sometimes it's
not about uh, you know,Netflix being over undervalued. It's, you
know, just this giant mote they'vecreated as and and having such a large
first mover advantage that you know theyshould continue to do well. And I
think that's what we're looking at is, Hey, you know you're always going

(41:36):
to have Netflix, and maybe you'lljuggle between Hulu, Disney Plus and Warner
Brothers and Paramount based on what showscome out. But you know, me
and Lauren always cancel those when we'renot watching something, and then we subscribe
when we're watching something. So andwe've never I've never once deleted or gotten
rid of Netflix. And I thinkthat's kind of showing well, for ten
bucks a month, it's it's moneywell special, seventeen bucks is real even

(42:00):
for seventeen Where did where did?Where did Netflix close? Like a week
ago? Where you punch that up? Yeah, you know that's it.
So if you look at and Ithink it was up you know at you
know, yeah, if you justlook at Netflix's five day return and we're
filming this Thursday afternoon, it's stillup eight percent, right, So one
month, one month return, it'sup ten three month is up forty seven.

(42:23):
So I think it just kind ofran away a little bit, but
I still think it's you know,a great company. You know, they
did add some free cash flow basedon this writer's strike and it looks like
an actor strike now, so thatcould maybe hurt their free clash flow and
I guess revenue you know, inthe three or four years, but it

(42:46):
should actually help create stability within Netflixas well. And also say get used
to this type of response from someof these companies. I think, as
you mentioned earlier, think they haverun up a bit, so any type
of disappointment, either real or perseed, is going to be sold into.
Even Tagwan Semi, you know,saw a little bit of headwinds on
their earnings. I think we're downfour percent on Thursday. What Tesla,

(43:09):
Yeah, Tesla. So you know, the things are kind of priced to
perfection where we are in a macroenvironment, especially with you know, next
week, next Wednesday, with um, you know, Powell and the FED
meeting, and I think, youknow, going right into the next topic,
that one hundred and six economists werepulled and every single one of them

(43:31):
said they believe it's going to bea twenty five basis points to bring the
FED funds rate to about five anda quarter to five and a half percent.
Do you think about that? Ithink that I'm going to give you
a weather analogy. The economy islike the ground. You know, it
could absorb a twenty five basis pointrate hike right now. I know we've

(43:51):
gone five and a quarter over thepast year and three or four months,
like Mark seventeenth of twenty two wasthe first rate hike that included three seventy
five basis point hikes through that duringlast year. I think the market,
the economy can absorb a twenty fivebasis point rate hike at this point.

(44:13):
Is it the right thing to do? Is it the wrong thing to do?
I think that's less of an issueright now. I think the issue
would be not the issue. ButI think what the Fed wants the market
to realize or the economy to realizethat they do mean business about inflation in
regard to inflation. So twenty fivebasis point rate hike will will you know,
pass that sentiment along and yet willnot do a lot of damage to

(44:35):
the economy in my opinion at thispoint. And I think maybe they take
another break and then then see what'sgoing on, and maybe another quarter point.
So we've said in our snapshot,maybe a couple more rate hikes,
but smaller and more spread out.Yeah, I think that's the correct thing
to do. As well as youwere saying, I think it's a lot

(44:57):
about a lot about the message they'retrying to say end here, and I
think they're trying to send a messageof like, hey, you know,
we're not going to get down tothose you know, one percent interest rates
that you saw over the last ten, twelve, thirteen years, and in
that you know, maybe we willget down to two three percent, but
you know, get used to beingmore physically responsible. I guess, you
know, even to corporations and companiesget used to you know, maybe not

(45:21):
a high interest rate environment, buthigher than you know, I guess what
we're what we have this uh youknow recent memories of you had companies borrowing
as much money as they could whenthe interest rates got to one or two
percent. Yeah, you know,you had companies whose dividends were much higher
than the interest they had to payif they've floated some bonds. So that
that was just kind of anomaly thatI don't think we're going back to.

(45:44):
I know, we only have acouple of minutes left, But I did
see something from the Permanent Funds putout, and I thought it was kind
of interesting. Is that there havebeen one, two, three, four
seven periods of time where the consumerprice Index has gotten above five point five
percent, and the average number ofmonths it took to retrace back to the

(46:06):
historical CPI from that five point fivepercent is about forty months. There was
a recession that occurred every time duringthat. So what that means is the
FED is probably going to continue tohike rates until inflation comes back down to
its historical average, and they're probablygoing to be a recession. Doesn't mean

(46:29):
to say the market's going to godown, because the market has in my
in our opinion, has already pricedin I think a mild recession. So
but but but that is interesting thatI think that's you know, as in
the news that you just say,you know, yes, stay diversified,
you know, take advantage of youknow, that sixty forty portfolio that maybe

(46:51):
had to be seventy five twenty fiveover the past fifteen years because the interest
rates were so low. Um,And I think that's that'll be important going
forward, and it could be Yeah, I think a decent time to reposition
yourself if you're you know, retired, nearing retirement. They like, yeah,
we didn't even get into one thingI did want to talk about that.
You know, retirement is a newphenomenon really within the only paste hundred

(47:15):
years or so, most people neverretired. That's kind of interesting. You
know, at what point in timedo you say to yourself, like,
let's say you were fifty and youhave a good chunk of money saved.
I've never really hear this question.Hey, do I have to continue putting
into my phoneking? Oh, yeah, of course you do. Of course
you do. Well, I reallylike to take some trips. Oh no,
no, you know, it's likeI don't know about that. You

(47:35):
know, I think everyone's journey isdifferent, and I think everybody has to
kind of make that journey on theirown, with some with some help from
people at right answer either you know, you do what's I guess best for
you mentally, physically, what you'rehappy doing right within reason to make sure
make sure you've got your rear endcovered for the future financially, and we

(47:58):
can help you do that. Sogive us a call during the way at
one eight hundred two, seven,three, six h two six five,
one, eight, two, seven, nine, ten forty four. Check
us out on the web at Faganassetdot com. Let us on Facebook.
We put a snapshot out every Sundaymorning before noontime, read little review,
preview of the market. And alsowe have a quarterly newsletter coming out,
so if you want any of that, go to one of those issues.
Air take Care, take Care,